The presence of deferred tax on a company’s or bank’s financial statements is not related to whether or not the business pays income tax. The tax liability is determined solely by whether the company reports taxable income (not accounting profit), in accordance with applicable tax laws. Banks currently have no taxable profits, given that their profits are offset by losses incurred during the economic crisis, banking sources note in light of the ongoing discussion on the matter.
Within the European regulatory framework, Greek legislation provides that a portion of the accounting deferred tax liability may be recognized as part of banks’ regulatory capital, through a guarantee provided by the Greek government in exchange for a fee paid to the government.
The amount of deferred tax recognized for regulatory purposes resulted from the massive losses suffered by banks during the economic crisis, primarily from the “haircut” on Greek bonds (PSI), and from the large write-offs of non-performing loans. Under generally applicable tax legislation, Greek banks may offset these losses against their future profits over time.
As the same sources note, this specific amount of deferred tax recognized as regulatory capital is gradually amortized each year, in accordance with the provisions of Greek law. The reason the governments at the time—the Samaras-Venizelos administration in 2014 and the Tsipras administration in 2017—proceeded with this specific measure was not to protect the interests of the banks, a significant portion of which was then owned by the state.
The measure was enacted, on the one hand, to ensure that the public funds that had been provided for the recapitalization of the banks would remain available to the Greek government to cover other fiscal needs and, second, because, without the deferred tax framework, the banks’ capital needs—and, by extension, the amounts required for their recapitalization—would have been significantly higher, placing a much greater burden on the Greek State.
Simply put, rather than having the Greek government pay additional funds again to recapitalize the banks, it introduced the provision allowing deferred tax to be recognized as capital.
It is worth noting that banks, unlike other businesses, are taxed at a rate of 29% (compared to 22% for other companies) and, furthermore, they do not pass on to the end consumer the VAT they pay to their suppliers, as basic banking services are exempt from VAT.
Thus, VAT represents a real cost for them rather than a neutral tax, as it does for all other businesses, resulting in annual payments of 350–400 million euros that directly burden their operating expenses and are remitted to the state budget. Consequently, their total tax contribution to public revenue is significant and is not limited solely to income tax or other direct taxes.
Consequently, the assertion that “banks do not pay taxes” is inaccurate and does not reflect the full extent of their tax burden. Furthermore, they point out that banks pay the government an annual fee for the deferred tax guarantee, which has been set at market rates and approved by the European Competition Authority.
Therefore, they note, the constant revival of this issue by political parties or party officials raises questions, especially since these very parties were directly involved in the relevant decisions and legislation.
For example, there is a proposal to accelerate the write-off of deferred taxes. However, this has already occurred at the initiative of the banks themselves. Systemically important banks approached the supervisory authorities and sought their approval to proceed more quickly with the amortization of DTC.
Securing the green light from European supervisory authorities for the scheme that was approved and is already being implemented required lengthy and arduous negotiations, despite the fact that the banks themselves sought to accelerate the process. Thanks to the persistence and arguments put forward by the systemic banks, a specific timeline was approved, and the banks have already begun, as of the 2025 fiscal year, to amortize DTC at a rate higher than that stipulated by the relevant law, with the primary aim of improving the quality of their capital.
Specifically, in addition to the amortization required by law, the DTC is amortized for regulatory purposes by an additional amount equal to 29% of the dividends paid to shareholders. The higher the dividend, the faster the DTC is written off. In 2025, the DTC write-off amounted to 1.5 billion euros, instead of the approximately 700 million euros provided for by the 2017 law.
Based on the banks’ business plans and projected dividends, the full amortization of the DTC will be completed 8–10 years earlier than originally projected by the relevant law. In other words, the DTC is expected to be fully amortized in 2032 or 2033, as opposed to 2042, which had been set by the law as amended in 2017 by the government at that time.
Often, the proposal to accelerate the amortization of deferred tax liabilities is put forward alongside a proposal to reduce dividends—which is inherently contradictory, since the distribution of dividends is precisely the mechanism for faster amortization of the DTC, as approved by the ECB.
The full amortization of the DTC in 2028 is also under discussion. Our estimate is that in that year, the outstanding amount of the DTC will be approximately 8 billion euros, or 30% of CET1 capital. How will this capital adequacy shortfall be covered?
Obviously, new capital increases will be needed—not for growth purposes, but because the DTC’s amortization schedule will be further accelerated. In other words, the banks themselves accelerated the amortization from 2042 to 2032—which they consider a safe acceleration—and now we want to move it up even further. We understand what this means, beyond the need for further recapitalization, for the country’s credibility in its efforts to attract investment.
The banks are already channeling their recovery back into the economy. It should be noted that, thanks to the banking system’s adequacy of capital and liquidity—based on official data from the European Central Bank for the post-pandemic period (2022–2025)— Greece had an average annual rate of credit expansion to non-financial corporations (NFCs)—that is, to the real economy—of 10.9%, the third-highest in the Eurozone.
Furthermore, regarding a pressing social issue—housing— it is worth noting that interest rates on new mortgage loans in Greece, in particular, are lower than the European average, with a fixed rate of 3.16% for the first five years compared to the European average of 3.43%.
How would credit expansion or loan margins be affected by a sudden capital shortfall in the range of 8 billion euros? What does this mean for the country’s credit rating, which, according to all international organizations, depends on the soundness of the banking system? And what will be the impact on the government’s borrowing costs?
Alongside the above points regarding deferred taxation, it is reported that the average profitability of banks in the EU is close to 1% of GDP, while in Greece, it is double that, at nearly 2%. The truth is that in the banking systems of a number of southern European countries, such as Portugal, Italy, and Spain, as well as in Austria, bank profitability stands at 1.7%–2.1% of their respective GDPs. Similarly, the interest margin in these countries does not differ substantially from that of Greek banks.